Why the super-rich get richer

&gt; <i>It&#x27;s not hard to understand what happened, although economists, as a group, seem to be incredibly dense on this point. Computer technology allowed radical increases in productivity.</i><p>Not sure it&#x27;s that cut and dry, nor that the rise of computers could be the cause of such a sharp inflection point. Bretton Woods ended around 1971-73...In fact the real wage of nonsupervisory workers peaked in 1973[1]<p>[1]<a href="http:&#x2F;&#x2F;www.nytimes.com&#x2F;2006&#x2F;09&#x2F;01&#x2F;opinion&#x2F;01krugman.html" rel="nofollow">http:&#x2F;&#x2F;www.nytimes.com&#x2F;2006&#x2F;09&#x2F;01&#x2F;opinion&#x2F;01krugman.html</a>

If someone can provide a definition of rich and can show the majority of people meeting that definition of rich stay in that class for very long, I&#x27;d be interested in seeing the data supporting it. I have looked for years and always found the opposite whenever a dataset allowed answering the question.<p>For any reasonable definition of rich ( * ) (by total wealth or by total income, for example), and for any dataset from which I can check the claim &quot;the rich get richer,&quot; I have found that the majority of those in that definition of rich do not stay in that class. So it seems far more accurate to claim the rich get poorer.<p>It&#x27;s hard to find such datasets, but some that you can find that demonstrate this are (I don&#x27;t care to chase them down, and my notes on it are not where I am sitting):<p>1) the majority born into the top quintile don&#x27;t end up there (although the most likely quintile to end up in is the top). I think St. Louis Fed has studies on this.<p>2) the richest Americans, as measured by Forbes 400, demonstrate that the majority are first generation in that class. This you can check yourself quite easily.<p>3) Various tax studies show that people don&#x27;t stay at the top for income.<p>Sure, a wealthy person rarely falls to zero, but once you fix a definition of rich and see how long people in that class stay at that definition, the majority simply do not last.<p>(*) if you define rich as the top 90% of people by wealth, which is not a very common way to define it, then the majority stay in it over time.

Federal Reserve policies to ease interest rates and purchasing securities (via QE) have the effect of inflating asset prices.<p>Wealthy people are often paid with assets (executive stock&#x2F;option grants), work in asset-managing businesses (hedge funds&#x2F;PE), and&#x2F;or hold more assets than the poor (business owners).<p>In my view, the Federal Reserve is mainly responsible for exploding income, not that technology doesn&#x27;t play some role as well - but, if it wasn&#x27;t for exploding asset values, VCs would not be as desperate to invest in crazy money-losing ideas to automate XYZ (causing unemployment elsewhere) that they can sell to a bigger fish.<p>(Interested to know if the Fed is a disputed explanation.)<p>It seems strange to me that we have such a simple root cause but complicated ideas for how to stop it, other than curtailing the Federal Reserve.

I agree that productivity &amp; cheap energy played a major role in the devaluation of the traditional worker but I find it highly suspicious that the blogger does not consider at all another remarkable phenomena that started in 1971: &quot;free floating fiat currency&quot; and the tremendous increase in the money supply. This amazing currency is &quot;free&quot; but chooses to float only one direction: devaluation. Maybe the increase in productivity was the perfect cover for the massive increase in the money supply and the masses had no feeling of high inflation while still paying the hidden tax.

The article title and the contents don&#x27;t match up. If you&#x27;re interested in how technology is and will be replacing most jobs we have now see &quot;Humans Need Not Apply&quot; <a href="https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=7Pq-S557XQU" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=7Pq-S557XQU</a><p>I believe that we will need to make some structure that allows for people to work who want to earn more, and still support a considerable number of people who just aren&#x27;t employable in the future. There don&#x27;t have to be just winners and losers like this article posits, it isn&#x27;t us versus them, and technology shouldn&#x27;t be vilified.

His second figure[1] shows his argument is nonsense.<p>The slope of increases in productivity remains constant on most of the graph, it just is that a certain point, wages stop going up. That is, the computer revolution did not change that slope, at least not until 1995-2005 (possibly from the internet).<p>Until the 70&#x27;s, increases in worker productivity from technology were given to the worker as pay. After the 70&#x27;s, it appears they were given to management and shareholders.<p>[1] <a href="http:&#x2F;&#x2F;2.bp.blogspot.com&#x2F;-NEITJXBoBbY&#x2F;VTY54JJX8gI&#x2F;AAAAAAAADiI&#x2F;m_DQ4HrrylU&#x2F;s1600&#x2F;productivity.jpg" rel="nofollow">http:&#x2F;&#x2F;2.bp.blogspot.com&#x2F;-NEITJXBoBbY&#x2F;VTY54JJX8gI&#x2F;AAAAAAAADi...</a>

I&#x27;ve finally come to understand why I care so little about income inequality. Income is not the only measure of wealth, I don&#x27;t even consider it the most important.<p>I was hanging out at the bar the other day with this software developer from India. He had brought a puppy with him to the bar. While I was playing with the puppy and we were chatting, a girl comes up to us and wants to play with the puppy too.<p>His intentions became nakedly known when he kept saying over and over that &quot;me and the puppy are a package deal.&quot; As I was leaving to head to the restroom, he starts going on about how he&#x27;s &quot;recruiting&quot; for a boat trip in the Caribbean. When I got back she was gone, obviously unimpressed.<p>It got me thinking about the dating market. No woman I know has wealth anywhere on their priority list for men they want to date. That guy could have been telling the complete truth about yachting in the Caribbean and she&#x27;d have had the same reaction. Who wants to spend time with a boor even on a luxury yacht?<p>If he&#x27;d been legit Mr. Darcy, sure, I&#x27;m sure she&#x27;d have been eating out of his hand.<p>--------------------------------<p>If I wanted to, I could fairly easily jack up my yearly salary by anywhere from $25-50K by finding another job. The reason I haven&#x27;t done that yet is simply that the switching costs vastly dwarf the (slight) standard of living increase that the bump would afford me. When I look to move the needle, salary just doesn&#x27;t look attractive. Just having one is the big win.<p>I hold that money is cheap right now precisely because capital is worth much less, relative to other kinds of wealth. Who is killing it right now? Apple. Samsung. Global commercial institutions. Finance has accomplished its goal of making everything fungible, now the only things left that are worth anything relative to anything else are precisely the things that finance can&#x27;t replicate, like an amazing company started by an amazing genius.<p>So, no, capital accumulation is not worrying to me, because it&#x27;s obvious to me that we live in a much richer world now than we ever have. Doesn&#x27;t look that way on paper, but that&#x27;s because we don&#x27;t have a way of representing, in the numbers, the idea that money itself isn&#x27;t worth what it used to be. Capital accumulation is exactly what would happen if everyone started subconsciously realizing that cash is no longer king. They&#x27;d place their investments elsewhere, leaving some poor sap holding the big bag of worthless paper.

&gt;Actually, think surgery. Many procedures (try 400,000 a year) are robotic now.<p>This doesn&#x27;t put anyone out of a job currently and has absolutely zero in common with the ECGs, CTs, and and ultrasounds mentioned before. As far as I know, robotic cases require the same amount of personnel to perform. Typically the people you need for robotic cases have more specialized knowledge and additional training (sold by da Vinci I imagine), not to mention the technical people da Vinci needs to hire for maintenance which wasn&#x27;t going to be supplied by the hospital anyway.<p>Cab and Uber drivers should be scared of driverless vehicles because there&#x27;s a proof of concept that exists, but unless something has happened in the past 2-3 years, I really don&#x27;t think a proof of concept exists for automated surgeries or automated support personnel for surgeries.

When you have no money you work for money, when you have money it works for you. As time goes on the more it will make for you. So if you have 10,000 in a fund with 10 percent return it makes you 1,000 each year. So Over 47 years you will be a millionaire. This is then past to the second generation which then does the same then passes this to the third generation. Only once this cycle is broken will the poor and rich gap narrow.

&gt; According to Uber, the median wage for an UberX driver working at least 40 hours a week in New York City is $90,766 a year. In San Francisco, the median wage for an UberX driver working at least 40 hours a week is $74,191. Does that sound like a plan for reducing income inequality? Or increasing it?<p>I don&#x27;t know. What are the median wages of the cab drivers that these UberX drivers are apparently putting out of work? The article doesn&#x27;t say.

Lots of stuff happened in the 1970s. It&#x27;s requires a huge leap of logic to say that computers are the cause... after all correlation does not imply causation. You need significantly more evidence to prove that computers are the cause of the growing wage gap.<p>There was a really famous book that was published recently called &quot;Capital in the 21st century&quot; by Thomas Piketty that summarizes the real reason:<p><a href="http:&#x2F;&#x2F;www.economist.com&#x2F;blogs&#x2F;economist-explains&#x2F;2014&#x2F;05&#x2F;economist-explains" rel="nofollow">http:&#x2F;&#x2F;www.economist.com&#x2F;blogs&#x2F;economist-explains&#x2F;2014&#x2F;05&#x2F;ec...</a><p>The book is dense, but the logic and evidence is compelling. Basically it says that you need to look at more data, because there was ALWAYS a trend towards inequality that was temporarily reversed from 1930-1975, read below:<p>&quot;&quot;Capital&quot; is built on more than a decade of research by Mr Piketty and a handful of other economists, detailing historical changes in the concentration of income and wealth. This pile of data allows Mr Piketty to sketch out the evolution of inequality since the beginning of the industrial revolution. In the 18th and 19th centuries western European society was highly unequal. Private wealth dwarfed national income and was concentrated in the hands of the rich families who sat atop a relatively rigid class structure. This system persisted even as industrialisation slowly contributed to rising wages for workers. Only the chaos of the first and second world wars and the Depression disrupted this pattern. High taxes, inflation, bankruptcies, and the growth of sprawling welfare states caused wealth to shrink dramatically, and ushered in a period in which both income and wealth were distributed in relatively egalitarian fashion. But the shocks of the early 20th century have faded and wealth is now reasserting itself. On many measures, Mr Piketty reckons, the importance of wealth in modern economies is approaching levels last seen before the first world war.&quot;<p>The real reason for economic inequality is not technology, it is actually a feature of capitalism. In simple terms what is happening is that invested wealth grows faster for rich people then it does for poor people and this causes the gap to grow. See the quote below:<p>&quot;From this history, Mr Piketty derives a grand theory of capital and inequality. As a general rule wealth grows faster than economic output, he explains, a concept he captures in the expression r &gt; g (where r is the rate of return to wealth and g is the economic growth rate). Other things being equal, faster economic growth will diminish the importance of wealth in a society, whereas slower growth will increase it (and demographic change that slows global growth will make capital more dominant). But there are no natural forces pushing against the steady concentration of wealth. Only a burst of rapid growth (from technological progress or rising population) or government intervention can be counted on to keep economies from returning to the “patrimonial capitalism” that worried Karl Marx. Mr Piketty closes the book by recommending that governments step in now, by adopting a global tax on wealth, to prevent soaring inequality contributing to economic or political instability down the road.&quot;<p>I&#x27;m no economist but according to my knowledge this is the prevailing theory in academia today.

What this article suggests is possible in a world with no competition. I don&#x27;t think we can say this of most of the markets. And not only there is competition but there is international competition.

Globalization is Zero sum;

Misleading as I pointed out in a previous comment ( <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=9418512" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=9418512</a> )<p>&quot;the super-rich&quot; is different groups of people from year to year.

Diversification.

Compounding interest? Not a very compelling headline.